Rental income dip hurts Growthpoint
In another sign of the dire state of the SA economy, Growthpoint Properties, the JSE’s largest real estate company, said rental income had dipped across its R77bn portfolio, with potential tenants unwilling to make long-term commitments.
“There is zero business confidence in SA,” CEO Norbert Sasse said at the presentation of the company’s interim results on Wednesday.
“Ongoing political rhetoric does not help either.
“No-one is prepared to sign a five- or 10-year lease in this uncertain climate.”
Just a day after iconic SA construction company Group Five went into business rescue amid a lack of infrastructure spending, Growthpoint said rental growth on lease renewals was negative in all three market segments it operated in, the first time this has happened in its 18-year history.
Only its operations in Australia and Eastern Europe helped the company avoid the fate of many of its peers, which saw declines in dividends.
It managed a 4.5% increase in income payouts for the six-month period to December.
Growthpoint expected to maintain dividend growth at that level for the full year, even though Sasse said domestic market conditions would get worse before getting better.
As SA’s most diversified and largest SA real estate counter with a market capitalisation of R73bn, Growthpoint is widely regarded as a reliable bellwether of the state of the overall market.
Sasse said although all sectors of the SA real estate markperiod et struggled, offices were hit the worst, with landlords cutting prices to keep tenants.
“Rentals for some of our office tenants, whose 10-year leases came up for renewal last year, have literally halved.”
The only place in SA where Growthpoint still saw demand for office space was at the V&A Waterfront in Cape Town.
Even there, retail sales growth and hotel occupancies came under pressure, partly due to the city’s water crisis, which hurt tourism.
Trading densities, or sales per square metre, at Growthpoint’s SA shopping centres barely grew in the reporting – at an average 1.5%. Growthpoint said its participation in the rescue of Edcon would not have a material effect on its rental earnings.
It opted to offer Edcon a capital injection of R110m in return for an equity stake, instead of the 41% rental cut the retailer requested over two years from its landlords.
Growthpoint’s entry into the Australian real estate market 10 years ago, through a 66% stake in Growthpoint Australia, contributed about half of the company’s 5.9% growth in distributable income for the six months to December.
The more recent entry into the office markets of Romania and Poland also underpinned earnings growth.
Growthpoint’s offshore interests comprised 31.3% of total assets of R138.7bn.
Sasse said he hoped to further increase the company’s footprint in Central and Eastern Europe.
“There is growing demand there for space, low vacancies and tenants are prepared to sign long leases,” he said.
The poor performance of Growthpoint’s SA portfolio was indicative of a stalling SA economy, analysts said.
Growthpoint’s share price gained 0.9% to R24.73 on Wednesday, pushing its increase in 2019 so far to 6.1%.